16 October 2020
Those familiar with the Bank of England (B of E) quarterly bulletins will know that in their latest bulletin, they have returned to preparing a forecast; after a period when they are unable to do so. Their forecasts for the next quarter have been prepared under a 'great deal of uncertainty'. For schools facing financial uncertainties, how can they react to these uncertainties on emerging from lockdown? Henry Briggs, partner and former school governor discusses the issue.
The importance of forecasting
What B of E do know is that the UK’s GDP fell some 20% in the second quarter of this year; and it is not anticipated to return to the 2020 level until the end of 2021. It has also been announced by the government that the furlough scheme for the staff laid off due to the Covid-19 restrictions, will end in October. It has been a lifeline for many. It has never been so important (and difficult) for private schools to attempt to forecast and measure their financial performance. Financial reports in many schools are monitored termly and consist of an Income and Expenditure (I & E) report against budgets. Cash must also be monitored by monthly updated forecasts, reconciling with I & E and a balance sheet (forecast and reported), circulated as soon as possible after a month end to the school’s Finance Committee. It is helpful in the circumstances if these reports show the effects of Covid-19 and also have scenarios depicting different possible outcomes for pupil numbers and fee income.
The school reaction
Schools’ reaction to the crisis has been very much under public scrutiny, teachers unions in the state sector obstructing the reopening of schools are not emerging covered in glory. By contrast, the efforts made in the private sector with virtual teaching, pastoral care and assistance with home schooling, have fared well. Where state schools have been able to seek up to 80% of salary costs for staff laid off. Whilst most of these claims have related to support staff during term time, as teachers could not be put on furlough and fulfill any of their duties, there have been reports of schools putting teachers on furlough during the holidays, when they have not been required for teaching duties. Government guidance in this respect is misleading. Legal advice takes into account the nature of teachers’ contractual duties during the school holidays, but the general view is that private schools can take advantage of the scheme, of the staff concerned are not available for work. Several large companies in the public eye have repaid or foregone claims that they may well have been legally entitled to, but felt to be morally unjustifiable. Private schools, who are deemed to receive some element of taxpayer support, whether through the business rates system, VAT regime, or other taxes due to charitable status, should also consider the public relations effect of furlough claims on the Treasury.
The furlough scheme in private schools
The purpose of the furlough scheme was to prevent long term unemployment, due to what term cash flow crisis to employers. If private schools will have to make teaching staff redundant as a result of corona virus unless they are able to make a claim, then claims might be justifiable in the public eye and within the spirit of the scheme. If, however, the staff concerned are term time only, re-employed after the holiday, and the school has not gone through any kind of restructuring or redundancy program, such claims may be seen to be a sham. For schools facing financial uncertainties, emerging from lockdown is likely to be as much of a challenge as surviving during it. The end of the furlough scheme will need to be anticipated and monitored by those organisations who have claimed government support, by close and careful financial supervision and control. Private schools cannot be sure which of the conflicting projections for overall pupil numbers in the sector will apply to them. Returning to the B of E bulletin, education is the third highest sector (after accommodation & food; and other services) to have been adversely affected by the crisis. The shock to the UK economy has been sharper, but shorter lived, than the banking crisis ten years ago. It has been produced and anticipated permanent scarring of 1.5% to GDP. On the positive side, savings in higher income groups have increased, and the B of E is doing all it can to encourage and increase the high street banks’ ability to lend. All of these should mean that well managed, prudent independent schools should face the future with cautious confidence. For advice and help on the impact of COVID, get in touch with one of our experts.
